By Jim Lackey, Heartland Institute Telecom Expert
State legislators are desperate for new tax revenue to plug massive deficits without cutting spending. And a confident Democratic Washington, DC now has the power to enact virtually any tax policy it wishes--with aims to impose sales taxes on every online purchase. In the process, politicians could demolish one of the last remaining redoubts of vibrant economic enterprise in the United States.
The commerce clause of the U.S. Constitution, as interpreted by the Supreme Court in the 1992 Quill v. North Dakota decision, prevents a state from compelling a company to collect sales taxes unless it has a physical presence in the state. In that ruling, however, the court noted Congress, which has the authority to regulate interstate commerce, is free to determine "the extent the states may burden interstate mail order (and online) concerns with a duty to collect use taxes." That day is imminent.
Sen. Mike Enzi (R-WY) and Rep. William Delahunt (D-MA) are expected to sponsor a bill to allow states to force out-of-state Internet sellers to collect their sales taxes. Such a bill would buffet the U.S. economy at the worst possible time.
The economy contracted by more than 6 percent in the past two quarters. The last thing we need right now are policies that will further suppress commerce. Internet sales taxes also present a compliance nightmare for every online firm, from small mom-and-pop retailers to Amazon and Overstock. There are about 7,400 tax districts across the United States, which makes it absurdly difficult to ascertain which state gets what cut of tax revenue for sales that take place in several places and, in a sense, no place.
Supporters of this idea say part of the deal will be a simplification of sales taxes from state to state. The public can be forgiven for looking at the history of tax "simplification" in America and seeing it as a scheme to force all states' tax rates up by reducing competition among the states.
One can empathize with state legislatures dealing with budgets bleeding pools of red ink. The solution, however, is not to impose new taxes on Americans, but to reduce government to handle only its core functions. The public can easily afford that without new taxes.
The following articles offer additional information on Internet sales tax hikes and their effect on e-commerce.